The Dollar's Dance: Market Reactions to Economic Indicators and Tariff Talks

The U.S. dollar weakened as investors awaited crucial inflation data and pondered President-elect Trump's tariff policies. Revised GDP data, unemployment claims, and durable goods orders influenced market movements. Tariff vows rattled key trading partner currencies. Analysts debated the impact of inflation on potential policy changes, while the yen showed resilience.

The U.S. dollar faced widespread declines on Wednesday as investors anticipated crucial inflation data and were wary of President-elect Donald Trump's tariff promises. This movement occurred amidst end-of-month portfolio realignments. Revised data indicated a GDP increase of 2.8% in the third quarter, aligning with previous estimates. October's durable goods orders rose modestly by 0.2%, while unemployment applications fell to 213,000, slightly below the prior week's revised 215,000 claims.

The dollar/yen pairing hit a five-week low, diminishing by 1.18% to 151.3. The weaker dollar uplifted the euro by 0.8% to $1.0568. Consequently, the euro/dollar pair reached a weekly high, while the dollar index, which evaluates the greenback's strength against various currencies such as the yen and euro, dropped to its lowest point since November 13, marking a 0.7% decrease to 106.09. Anticipation is mounting over the forthcoming Personal Consumption Expenditures (PCE) price index release, scheduled before the U.S. markets' closure for Thanksgiving.

Trump's recent tariff assertions against Canada, Mexico, and China stirred markets, unsettling investors. Analysts argue that inflation concerns might restrain Trump from proceeding with aggressive measures. Viktor Shvets from Macquarie Capital highlighted Trump's electoral reliance on factors like inflation, emphasizing potential voter backlash without improvements. Trump's Treasury Secretary pick, Scott Bessent, is expected to manage deficits and utilize tariffs in negotiations, affecting dollar valuation vis-à-vis foreign assets. The yen benefited from expectations of a Japanese rate hike, as well as strategic positioning. Meanwhile, Japan's strong financial ties with the U.S. buffer against potential tariff impacts.

(With inputs from agencies.)